Diggers flags the rise of Australia's critical minerals space

More than half the 70 companies allocated time at the conference have gold as their core interest, which is understandable as Diggers & Dealers and Kalgoorlie have gold roots. But apart from a handful of international majors such as Gold Fields and AngloGold Ashanti, and big locals such as Newcrest Mining and Northern Star Resources, most of the Australia-based gold stocks at the event are relatively small producers, or exploration hopefuls. It's a different story on the ASX, where gold companies are a declining breed and lithium stocks are a growing presence. The shift in investor focus away from gold towards other metals has been underway for several years, but only in the past two has the migration morphed into a stampede. High prices for battery and other critical metals needed in modern technologies, such as the rare earths in electronics and the permanent magnets in wind turbines and electric vehicles, are one reason for investors being attracted to lithium, nickel, cobalt, and graphite. But another reason is that gold is being treated as one of yesterday's metals, along with iron ore, another fading star in Australia, a view which could be a big mistake because gold, as every investor should know, is not just another commodity, it is also a global currency and one that has significant counter-cyclical appeal. Macquarie Bank expected two key themes to emerge at the three-day event: critical minerals and cost inflation Whatever the explanation, the fall of gold and the rise of lithium is a noteworthy event measured by the presence of just three gold stocks on the ASX top 150: Newcrest at 20th with a market value of A$17.3 billion; Northern Star at 53rd with a value of $9.1 billion; and Evolution at 95th with a value of A$4.8 billion. The lithium stocks in the stop 150 are: IGO at 59th with a value of A$8.3 billion; Pilbara Minerals at 60th with a value of A$8.2 billion; Allkem at 71st with a value of A$7.2 billion; Liontown at 135th with a value of A$2.9 billion; and then there's the latest addition to the lithium league table, Mineral Resources at 44th and a value of A$10.1 billion. Some observers might argue that Mineral Resources is more of an iron ore and engineering services company but that's not the view of Bell Potter, an Australian stockbroking firm, which sees the company's lithium business "stepping out of the shadows". In a report published last week Bell Potter speculated this was "the year of the white rocks" for Mineral Resources with strong revenue and profit growth largely a function of "lithium product sales and relatively high forecast lithium product prices". That view of lithium becoming the dominant profit contributor for Mineral Resources sits comfortably alongside last week's critical metals analysis from ANZ Bank that predicted an increasing squeeze on the supply of metals for use in modern technologies, which can only mean higher prices. Collectively, the three leading Australian gold stocks at Diggers & Dealers have a market value of A$31.2 billion, while the five lithium-exposed stock at the conference have a collective value of A$36.7 billion. So, with Mineral Resources firmly on the lithium side of the ledger, the pecking order at the iconic event takes on a different look, with the once gold-heavy conference at risk of being overpowered by lithium. Macquarie Bank has also spotted the shifting focus at Diggers & Dealers telling clients in a research note published on late last week that it expected two key themes to emerge at the three-day event: critical minerals and cost inflation. The bank's top five stocks among the 70 presenters are lithium producers IGO and Pilbara Minerals (IGO also has nickel interests). Mincor, and Centaurus (both nickel) and Chalice (nickel and palladium). Macquarie said recent share-price falls by stocks exposed to base metals such as copper and nickel represents an opportunity for investors. "With forecasts of a global economic slowdown, base metals such as copper and nickel have fallen, while stocks tied to those metals have also declined," the bank said. "Base and critical metals have an important role to play in energy transition particularly through their use in EV batteries. "In nickel, IGO and Mincor are our favoured producers. Centaurus is one of the most attractive developers, while in copper we prefer 29Metals. Chalice remains our key pick for explorers." It's only in considering cost pressures that gold scores a mention because Macquarie reckons gold sector has been the most acutely effected by rising costs because of the inherently higher cost nature of gold operations.

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